Mutual recognition of funds (MRF) between Hong Kong and China will not harm sales of unit-linked products to Chinese investors in the special administrative region, argues US insurer MetLife's Hong Kong head of product development.

Hamilton Yuen also saw new regulations around the sale of investment-linked assurance scheme (Ilas) products as a positive for the industry, despite a fall in premiums since the rules came in on January 1, 2015. Ilas products offer access to mutual funds sold in insurance wrappers.

The MRF scheme opened to applications in July last year, but take-up has so far been disappointing, though admittedly the timing of the launch was unfortunate, coming as mainland stocks had begun a heavy sell-off.

"Investment-related insurance products have good prospects in Hong Kong. Mainland Chinese investors are still coming to Hong Kong to buy," he noted. "Renminbi depreciation and US dollar strength mean want to move money out of the domestic market. Investment instruments in China are still limited, and buying insurance offshore is a way to diversify.

Yuen said mutual recognition would not cannibalise unit-linked sales as there was a "fair amount of restrictions on funds" seeking to qualify for the scheme. "The requirement for firms to manage funds locally isn’t easy."

But insurers face regulatory challenges of their own in Hong Kong. One is GN15, a guidance note designed to reduce aggressive selling or mis-selling of Ilas products. From the start of 2015 it banned indemnity or upfront commission payments. As a consequence, old Ilas products had to be closed to new subscribers and insurers have had to develop new products to comply with the new rules.

But while some insurers, such as Standard Life, refocused their Ilas offering on clients with $1 million-plus in net worth (as opposed to targeting the mass market), Yuen said Metlife would continue to offer a range of products.

"I can’t comment on other insurers’ strategies," he said. "My view is that it’s better to have mixed types of products to protect your business when one segment suffers a crisis." For example, Yuen noted, from 2003 up to the 2008 financial crisis, Ilas products sold very well, but when the crisis hit, people quickly shifted back to traditional insurance products. 

Moreover, focusing on single-premium business does not provide fund managers with a steady flow of revenue, he added. If a client surrenders a single-premium Ilas investment, which collects a lump sum from investors, the fund's AUM will fluctuate, which makes it harder to manage.

"We don’t want to see that," said Yuen. "There should be a balance of everything to have a constant flow of money into the business."